What's the optimum size of the ideal STR ?

9 Replies

There are a lot of conversations here on BP about city/location, but not much about the size of the property. Since we all know size DOES matter ;) what has been your experience? It's well established that for LTR, smaller units have higher cap rates and lower vacancies, obviously. The downside is the time to manage. But how about STR? Is it following the same rule or there are as much demand for large properties as for small ones because of family gatherings and vacations and things people don't do at their homes?
Of course this also depends on the location and the demography. But here's my final question:
In your location, if you had the choice of buying a duplex with each unit having 2BR/1Ba, 1000 sqft each or a 2000 sqft SFH with 4 bedrooms, at the same purchase price, which way would you go?

I cater to corporate travelers. I'd get the duplex.

I'd rather get the fourplex with each unit being 1B1B though :)

Fun question @Kevin Lefeuvre !  I'm in Lake Tahoe so it's a no-brainer for me, definitely the 4 bedroom.  I'm actually working on a deal right now for a 5 bedroom 2 bath because it's all about how many beds you can fit in the house.  Just need to be sure to cater to families and not bachelor parties.  :)

Thanks for the discussion! 

Cheers!

~Jon

@Andrew Wong sure you have a bigger market on the smaller size housing. I agree.
For Tahoe, @Jon Crosby I would think it's not that obvious. I know we are never more than 4 or 5 in a group for winter sport trips. But maybe you go that route to have less competition? Good luck with your purchase :)

@Kevin Lefeuvre

I like this discussion as I am contemplating the same issue right now.  One would think that heads in beds would be the overarching factor, but my historical tracking tells me otherwise (at least in AZ).  I have (2) 2-bedroom and (1) 3-bedroom condos, all within a mile of one another and all within a relatively short distance of Scottsdale.  For argument sake I'll toss out one of the (2) bedrooms since I just purchased it 4 months ago and do not have enough data to study.  The remaining (2) bedroom sleeps 6, the (3) bedroom sleeps 10.  I rarely have more than 6 guests in my (3) bedroom, and rarely more than 4 guests in my (2) bedroom.  YTD my rents are close, and believe it or not, the (2) bedroom is outpacing the (3) bedroom by 4% YTD net.

Photos and design do matter - Both places have stellar photos, but when I repaint/redesign my (3) bedroom, I'm going to lighten it up even more so - so it "pops", refurnish the 3rd bedroom with two full size beds instead of a full size / day bed / trundle to pack them in.  My (2) bedroom jumps off the listing page and my gut tells me this matters (and so do the so called "industry experts".

Location matters more than size (at least in townhouses/condos) - my (2) bedroom is nearly on top of Old Town Scottsdale - entertainment district - a 5 minute walk.  The (3) bedroom is 1-mile away, a $5 UBER/car ride.

This leads me to believe that demographics are playing a large roll as well.  Based upon my guest photos and communication I receive, the (2) bedroom, walking distance draws a younger crowd whereas the (3) bedroom draws a more mature crowd.  The (3) bedrooms ADR is 3% higher than the (2) bedroom, however my occupancy is 13% higher in the (2) bedroom.

To confuse the situation further, I am now looking to acquire (2) homes in the area. From my research, and I'm exhausting this search, the top properties all appear to have pools, all jump off the page and their design elements are amazing. They also can sleep anywhere between 12 - 16 and nothing of this size has an Old Town walking location. This tosses my entire location theory for condos/townhouses right out the window, except for demographics.  They do net significantly higher rates and the cap rates are about 2-3% higher.  I'm concluding from this study that if I provide a bright, remodeled, 4-5 bedroom entertainment mecca house, e.g., sleep multiple or large families, provide a pool, putting green, billiards/foosball table, etc....  you can entice an entirely different demographic that the condo/townhouse crowd.  

@Jon Crosby - do you think # of bathrooms matter?  I'm thinking the ultimate house is 5 bedroom / 3 bath whereas you're considering at 5 bed / 2 bath.

Mike

Not to toot my own horn, but I'm the resident expert on this question.  14 2-bedroom and 8 3+ bedroom houses is what I currently have as STRs.  Most of my 2 BR's have 3 beds in them.  All of my 3 BR's have 4 beds.  My 4 BR's have 6 or more beds in them, with 2 or more baths.

2 bedrooms rent for $400/week.

3 bedrooms rent for $600.

4 bedrooms, the rent varies on the number of occupants.  The most they can make is $1200-$1600 per week.  But on average it's $800-$1000.

These are not VR's. They are STR's for refinery contractors. My typical renter is 40 year old male from Texas or Louisiana with a high school education making $30/hr and working 60 hours a week.

At the end of the year I add up how much each of the 22 houses make in rent.  They all make between $12-$16 k a year.  Some years a 4 BR makes the most money.  Some years a 2 BR makes the most money.  

A 2 BR is as easy to rent out as it is to pour water out of a boot with the instructions printed on the bottom of the heel. But they don't bring much in each week.  Half the time it's one person renting the place.  I charge a little less.

The 4 BR's are hard to rent out.  Not only do you need a group of 4-6 people, the 4-6 people need to get along with each other.  It's usually a father, son, uncle, in-law, cousin, neighbor.

It isn't the number of bedrooms that determine how many people a house can hold.  It is the number of bathrooms.  A rule of thumb is you need 1 full bath for each 3 people.

If I could do it all over again, I would only buy 2 BR houses and any 3 or 4 BR house that is a bank foreclosure.  A 3 or 4 BR bank foreclosure sells for the price of a 2 BR house in this town.  6 months of rent pays for the house.  It can take 7-12 months to get 6 months of rent.

@Michael Greenberg Totally agree that the 5/3 is the ideal combination, however the house I'm looking at is at such a value (basically the same price as my 3/2 I already have) and since I know that breaks even or cash flows a few thousand each year, I should find success with the 5/2 combo with no problem.  Just needs a few updates is all and does not have a garage.  

@Kevin Lefeuvre  Great point! So the question because occupancy rates based on the higher ADR then, not to mention turnover costs and wear and tear.  Good food for thought, sounds like a good opportunity to map and model it out in Excel to compare.  

Thanks!

@Michael Greenberg thanks for the detailed comment. Precious share. 

On the high end I studied LA and reached the same conclusion as you. As a matter of fact, I identified some busy properties, found their address, checked their appraisal and put them in my sheet to guestimate their financial perf. I found that in the low end, (under $200-$250 per might) smaller properties perform better financially. But suprisingly at the high end, performance is better than the mid range. There are some exceptional properties in Beverly Hills or Hollywood hills, pool, view, size, location, luxury, ... who charge any price and they get booked. In other words at the high end side of the market, the "guest" price is no longer #1 criteria. They look for a certain type of property and they pay almost any price for it. A few thousand $ per night. Their demography includes celebrities of course but also corporate trainings or corporate retreats, filming, events, etc... 

Location, Size, AmenitiesDemography and Usage are factors to work on as we create our "products", based on the markets we target.

If it were in my area, I vote for the duplex.  This is based on the vacancy rate logic similar to a LTR, if one is vacant it's not your entire place.  You can put things in the two bedrooms to increase the number of people who can stay there (sofa bed, trundle beds, air mattresses, etc).  In my experience, there are more smaller groups of people looking to stay at an Airbnb vs a large group.  In addition, there is also a feature on Airbnb where you can list the duplex as a total unit, giving you four bedrooms and two bathrooms, so if there is a large group/event you can also accommodate.  Good luck! Let us know what you decide!

Originally posted by @Jenessa NeSmith :

... there is also a feature on Airbnb where you can list the duplex as a total unit, giving you four bedrooms and two bathrooms, so if there is a large group/event you can also accommodate. 

Have not seen it yet. Good to know. Thanks Jenessa.

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